Kolkata: Some three weeks ago, B.K. Birla, chairman of the eponymous business group based in Kolkata, told close friends that his Jay Shree Tea and Industries Ltd had reached an agreement to acquire six tea gardens in Uganda from the London-based Finlays Group.
The tea industry was surprised when, on 23 December, the Khaitan family-owned McLeod Russel India Ltd trumped the BK Birla group with an announcement that it had concluded a deal to acquire James Finlay (Uganda) Ltd for $30 million (Rs140 crore).
“It’s a coup of sorts,” said a tea industry official close to Birla on hearing the news. “The Khaitans swung the deal in their favour in the past 15 days,” he added, speaking on condition of anonymity. It was the first time that the B.K. Birla and Khaitan families, which run among the most respected tea businesses in India, had competed with each other in making an acquisition.
They hadn’t done so in the past because McLeod Russel chairman B.M. Khaitan is a director of Jay Shree.
The Uganda deal could be the start of more competition as both groups pursue tea assets in Africa. “Drafts of the legal agreement had been exchanged and Jay Shree had even made an advance payment for the gardens,” Birla said in an interview. At that point, McLeod Russel raised its bid and snapped up the gardens, according to Birla.
“It hurt me,” Birla said. “But no one is at fault—strictly speaking, a deal isn’t closed unless it is signed.”
James Finlay officials weren’t immediately available for comment.
“B.M. Khaitan is an old friend—a very good friend; I know him for the last 50 years,” Birla said. “But business is business—such things happen in business.”
B.M. Khaitan’s son and McLeod Russel’s managing director Aditya Khaitan said the Finlays Group wasn’t ever in a hurry to sell its tea estates in Uganda. “We have been working on this deal for the past 18 months… I think they had a figure in their mind, which we offered and they agreed to sell,” he said.
The six tea estates have a combined production capacity of 15 million kg. This could be expanded to 20 million kg over the next five years, according to Khaitan. James Finlay (Uganda) has 3,500 ha under cultivation and five tea processing factories.
“We’re a long-term player,” Aditya Khaitan said. “When valuing an asset we consider its strategic importance, and if we feel that we couldn’t afford to lose it, we pay a premium to make sure we get it.” With the acquisition in Uganda, McLeod Russel shored up its production capacity to 96 million kg a year. It was the company’s second acquisition in Africa—its first was in Rwanda, which it announced in August.
Although the Rwandan government, which is divesting itself of tea garden assets, has since cancelled the sale to McLeod Russel, the tea industry in India expects Aditya Khaitan to “sort things out within a month or so”, according to the tea industry official cited earlier.
The BK Birla group has interests in cement, textiles, chemicals, tyres and tea. It is one of the biggest industrial groups based in Kolkata.
The BM Khaitan group’s interests include tea, engineering and batteries. Besides being the biggest producer of tea in the world, it is one of the biggest manufacturers of batteries; it owns the Eveready brand in India, which it acquired from Union Carbide Corp. All the group’s businesses were acquired.
Birla expects more competition with McLeod Russel going forward. Both Jay Shree and McLeod are keen to expand in Africa, and “more assets are on the block”, particularly in countries such as Kenya and Uganda, he said.
Competition does not, however, “make any difference to (his) friendship with B.M. Khaitan”, Birla added. “I have, however, told my people to be more careful from next time.”
